- Restarting Growth in sub-Saharan Africa
Abebe Aemro Selassie, in this article, identified the challenges bedevilling sub-Saharan Africa, positing that strong domestic policy measures are urgently needed to restart the engine of growth
Economic growth in sub-Saharan Africa has slowed markedly. After close to two decades of rapid expansion, 2016 saw the lowest level of growth in more than 20 years, with regional growth dipping to 1.4 percent. The loss in momentum was broad based, with activity slowing in almost two-thirds of the countries (accounting for more than four fifths of regional GDP). The main sources of encouragement are the sizable number of countries in Eastern and Western Africa where growth remains robust, albeit slower than in recent years.
And looking ahead, the outlook looks set to remain subdued. The modest recovery projected in 2017—to 2.6 percent—will barely put sub-Saharan Africa back on a path of rising per capita gains. Furthermore, the uptick will be largely driven by one-off factors in the three largest countries—a recovery in oil production in Nigeria, higher public spending in Angola, and a reduced drag from the drought in South Africa. The outlook is shrouded in substantial uncertainties: a faster than expected normalization of monetary policy in the U.S. could imply further appreciation of the U.S. dollar and a tightening of financing conditions; and a broad shift towards inward-looking policies at the global level would further hamper growth in the region. Domestic threats to a stronger economic recovery in some countries include civil conflict and the attendant dislocations like famine that they can trigger—as in South Sudan at the moment.
The fall in commodity prices from their 2010-2013 peaks was a very substantial shock. But, three years after the slump many resource-intensive countries have yet to put in place a comprehensive set of policies to address the impact of the decline in prices. Countries which have been hardest hit by the decline, especially oil exporters such as Angola, Nigeria, and the countries of the Central African Economic and Monetary Union (CEMAC), are continuing to face budgetary revenue losses and balance of payments pressures. The delay in implementing much-needed adjustment policies is creating uncertainty, holding back investment, and risks generating even deeper difficulties in the future.
It is also concerning that vulnerabilities are emerging in many countries without significant commodity exports. While these countries have generally maintained high growth rates, their fiscal deficits have been high for a number of years, as their governments rightly sought to address social and infrastructure gaps. But now, public debt and borrowing costs are on the rise.
Against this background, the external environment is expected to provide only limited support. Improvements in commodity prices will provide some breathing space, but will not be enough to address existing imbalances among resource-intensive countries. In particular, oil prices are expected to stay far below their 2013 peaks. Likewise, external financing costs have declined from their peaks reached about a year ago, but they remain higher than for emerging and frontier market economies elsewhere in the world.
Strong policies are needed to restart the growth engine
In view of these challenges, what can be done to restart growth where it has faltered and preserve the existing momentum elsewhere? We see three priority areas:
First, a renewed focus on macroeconomic stability is a key prerequisite to realize the tremendous growth potential in the region. For the hardest-hit resource-intensive countries, strong fiscal consolidation is required, with an emphasis on revenue mobilization. This is needed to swiftly halt the decline in international reserves and offset permanent revenue losses, especially in the CEMAC. Where available, greater exchange rate flexibility and the elimination of exchange restrictions will be important to absorb part of the shock. For countries where growth is still strong, action is needed to address emerging vulnerabilities from a position of strength. Now is the time to shift the fiscal stance toward gradual fiscal consolidation to safeguard debt sustainability. Greater revenue mobilization offers the best route to maintain fiscal space for much needed development spending.
The second priority is to implement structural reforms to support macroeconomic rebalancing. On the structural fiscal front, the focus should be to improve domestic revenue mobilization and reduce the overreliance on commodity-related revenue and debt financing. Financial supervision needs to be strengthened, especially that of pan-African banks through enhanced cross-border collaboration. More broadly, greater emphasis is needed to support the economic diversification agenda starting with policies to address longstanding weaknesses in the business climate. This will help to attract investment towards new sectors and unleash the large and still untapped potential for private sector-led growth.
Finally, policies to strengthen social protection for the most vulnerable are essential. The current environment of low growth and widening macroeconomic imbalances risks reversing the decline in poverty. Existing social protection programs are often fragmented, not well-targeted, and typically cover only a small share of the population. There is a need to better target these programs and use savings from regressive expenditures such as fuel subsidies to ensure that the burden of adjustment does not fall on the most vulnerable.
While the growth momentum has undoubtedly slowed, medium-term growth prospects in sub-Saharan Africa remain bright. To fulfill the aspiration for higher living standards, strong and sound domestic policy measures are urgently needed to restart the growth engine.
- Abebe Aemro Selassie, is Director, African Department, International Monetary Fund
Oil Prices Slide as U.S. Crude Stockpiles Surge, Heightening Demand Concerns
Oil prices declined on Thursday as concerns over demand intensified due to a larger-than-anticipated build in U.S. crude stockpiles.
Brent crude oil, against which Nigerian oil is priced, dropped by 0.5% to $83.25 a barrel while U.S. West Texas Intermediate crude oil fell by 0.3% to $78.28 a barrel.
The Energy Information Administration’s report revealed a substantial increase in U.S. crude oil stockpiles by 4.2 million barrels to 447.2 million barrels for the week ending February 23rd.
This surge surpassed analysts’ expectations and marked the fifth consecutive week of rising inventories.
While gasoline and distillate inventories witnessed a decline, concerns regarding a sluggish economy and reduced oil demand in the U.S. were amplified.
Satoru Yoshida, a commodity analyst with Rakuten Securities, highlighted that the significant stockpiles have heightened investor worries.
Moreover, the anticipation of delayed U.S. interest rate cuts further weighed on market sentiment, potentially undermining oil demand.
Traders have adjusted their expectations for rate cuts, with an easing cycle predicted to commence in June rather than March as previously anticipated.
Market participants await the U.S. personal consumption expenditures price index for insights into inflation trends, while the possibility of an extension of voluntary oil output cuts from OPEC+ looms over price dynamics, amid lingering uncertainty in the demand outlook and geopolitical tensions in the Middle East.
Crude Oil Shortage Threatens Dangote, Government Refineries, Minister Raises Alarm
The Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, has sounded a clarion call over a looming crude oil shortage that threatens the operations of the newly inaugurated Dangote Petrochemical Refinery and government-owned refineries in Nigeria.
Addressing stakeholders at the seventh edition of the Nigeria International Energy Summit in Abuja, Minister Lokpobiri expressed concerns that unless deliberate efforts are made to increase investments and crude oil production, these refineries may struggle to obtain enough feedstock for petroleum product manufacturing.
The Dangote refinery, a colossal project spearheaded by Dangote Industries Limited, has a daily requirement of up to 650,000 barrels of crude oil, while government-owned refineries could need approximately 400,000 barrels.
However, the current pace of crude oil production and investment in Nigeria falls short of meeting these demands.
Minister Lokpobiri highlighted the need to ramp up production and attract investments in the upstream sector to ensure adequate feedstock supply for the refineries.
He emphasized the importance of efficiently utilizing Nigeria’s abundant oil and gas reserves to enhance domestic energy security and economic prosperity.
Furthermore, the minister underscored the significance of investing in energy infrastructure and transitioning towards more environmentally friendly practices to address Nigeria’s energy needs effectively.
The alarm raised by Minister Lokpobiri underscores the urgency for strategic interventions and collaborative efforts to mitigate the impending crude oil shortage and secure the future of Nigeria’s refining industry amidst evolving global energy dynamics.
NNPCL Pledges End to Nigeria’s Energy Scarcity Within a Decade
The Nigerian National Petroleum Company Limited (NNPCL) has announced a bold initiative aimed at ending Nigeria’s persistent energy scarcity within the next decade.
Mele Kyari, the Group Chief Executive Officer of NNPCL, revealed this ambitious plan during the opening ceremony of the seventh Nigerian International Energy Summit in Abuja.
Kyari’s announcement comes as a beacon of hope for millions of Nigerians grappling with chronic power shortages and energy deficiencies.
In his statement, Kyari expressed confidence that all issues related to energy scarcity in the country would be resolved within the next 10 years.
Assuring stakeholders of NNPCL’s unwavering commitment, Kyari emphasized the company’s dedication to collaborating with partners to bridge the energy deficit gap and foster prosperity for all Nigerians.
He highlighted NNPCL’s pivotal role as a key partner to oil-producing companies in Nigeria, facilitating the divestment of international oil companies from onshore and shallow water assets in the country.
Furthermore, Kyari underscored NNPCL’s statutory mandate as the enabler of national energy security, emphasizing the importance of sustainable production from divested assets to ensure energy security for Nigerians.
In addition to addressing domestic energy challenges, NNPCL is also exploring avenues for sustainable energy investment across Africa.
Kyari revealed the company’s intention to invest in the proposed African Energy Bank, aiming to secure funding for energy projects on the continent and guarantee regional energy security.
The event, attended by prominent stakeholders including government officials and representatives from international organizations, marks a significant step towards reshaping Nigeria’s energy landscape and fostering economic development through improved energy access.
As NNPCL charts its course towards energy abundance, Nigerians remain cautiously optimistic about the prospects of a brighter energy future.
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